Material Management

Introduction
Material management is a process, through which a firm or company is supplied
with goods and services which it requires for succeeding in its goals of buying,
movement of materials and storing. The parameters related to material management
are as follows:
● Planning ● Furnishing the appropriate
material of true quality
● Storing
● Coordinating production activities
● Procuring
● Scheduling production activities
Many industries buy the materials and do the following activities with them in a
step by step manner:
● Transport materials into a plant ● Sell products or goods to
customers
● Transform materials into parts
● Transport products to customers
● Gather parts into furnish goods
Material management does the following activities for the materials requirements:
● Planning ● Inventory control
● Inventory planning ● Supply of materials
● Purchasing ● Transportation of materials
● Storage ● Handling of materials
About twenty-five years ago, there wasn’t a strong competition in market and
material management was not a vital part of an organization. At present, it is a vital
activity of management in production. Important functions of material management are
planning, purchasing and controlling. The enhanced productivity is its aim and is used to
perform the following:
● To decrease the cost ● In proper utilization of materials
● To enhance profitability ● In transportation
● In production streamline ● In distribution
Definitions of Material Management
i. Material management is defined as a concept in an organization which plans and
control distinct materials, their supply, their flow from the stage of raw materials
to the stage of finished goods and handover goods to customers as per the
needs of customers in right time.
● This complete process involves the functions right from planning to marketing
and material management is responsible for all these activities.
ii. Material Management is a term used to connote “controlling the kind, amount,
location, movement and timing of various commodities used in production by
industrial enterprises”.
iii. Material Management is the planning, directing, controlling and coordinating
those activities which are concerned with materials and inventory requirements,
from the point of their inception to their introduction into the manufacturing
process. It begins with the determination of materials quality and quantity and
ends with its issuance to production to meet customer’s demand as per schedule
and at the lowest cost.
iv. Material Management is a basic function of the business that adds value directly
to the product itself.
v. Material Management embraces all activities concerned with materials except
those directly concerned with designing or manufacturing the product.
vi. Material Management deals with controlling and regulating the flow of material in
relation to changes in variables like demand, prices, availability, quality, delivery
schedules etc.
● Thus, material management is an important function of an organization covering
various aspects of input process, i.e., it deals with raw materials, procurement of
machines and other equipment’s necessary for the production process and spare
parts for the maintenance of the plant. Thus, in a production process material
management can be considered as a preliminary to transformation process.
● It involves planning and programming for the procurement of material and capital
goods of desired quality and specification at reasonable price and at the required
time. It is also concerned with market exploration for the items to be purchased to
have up to date information, stores and stock control, inspection of the material
received in the enterprise, transportation and material handling operations
related to materials and many other functions. In the words of Bethel, “Its
responsibility end when the correct finished product in proper condition and
quantity passes to the consumer.”
History of Material Management
Material management became a vital function of management and the
department of material management was started at the time of World War I in the
United States of America. The advancement of principles of scientific management in
the 20th century by F.W. Taylor decreased the cost of production and proper utilization
of materials was enhanced. Charles baggage was known as “materials man” because
of his book on an economy of manufacturing and machinery which explains about the
functions of purchasing. Between the years 1970 and 1999 material management
enhanced a lot.

Importance of Material Management

Material management is a service function. It is as important as manufacturing,
engineering and finance. The supply of proper quality of materials is essential for
manufacturing standard products. The avoidance of material wastage helps in
controlling cost of production. Material management is essential for every type of
concern.
The importance of material management may be summarized as follows:
1. The material cost content of total cost is kept at a reasonable level. Scientific
purchasing helps
2. in acquiring materials at reasonable prices. Proper storing of materials also helps
in reducing
3. their wastages. These factors help in controlling cost content of products.
4. The cost of indirect materials is kept under check. Sometimes cost of indirect
materials also
5. increases total cost of production because there is no proper control over such
materials.
6. The equipment is properly utilized because there are no break downs due to late
supply of
7. materials.
8. The loss of direct labor is avoided.
9. The wastages of materials at the stage of storage as well as their movement is
kept under
10. control.
11. The supply of materials is prompt and late delivery instances are only few.
12. The investments on materials are kept under control as under and over stocking
is avoided.
 13. Congestion in the stores and at different stages of manufacturing is avoided.

Scope of Material Management

1. Purchasing of Materials
a. Materials should be of right quality- Fighting competition, increase in
market share, increasing awareness, Development of tools for measuring
quality, Lasting impression created by quality
b. Purchasing in right quantity- Supply pos, EOQ most adv & least costly
c. Purchasing at a proper time- Seasonal products: crop season, repeatedly
purchase items: reorder level
d. Purchasing at a right price- total cost S.P, competitive strength; quality,
durability, time, place, service
e. Purchase at a right place- Centralized purchasing policy, Min redistribution
cost
f. Purchase from the right source of supply- Continuity of supply, Main of
quality, Timely delivery, Quality of service

Material management means planning, directing, coordinating &

controlling of activities related to acquisition, storage, & maintenance of materials
needed for the purpose or production with an objective of minimizing the cost &
increasing the profitability

2. Storage (Store keeper)

a. Weight & quality are inspected
b. Classified as R.M, semi-finished goods, finished goods, spare parts,
electrical goods, engineering goods, chemical items
c. Stored properly, quality is maintained, proper safeguard against theft; cold
storage facility, safety tanks, underseal
d. Storage should be scientific- Diff groups, coding of items, preparing of
index showing code number & place or room number or cupboard
number; maximum use of space available, reduces wastage & cost,
protects quality, makes the item easily traceable
e. Bin card
3. Inventory Control
a. For maintaining the continuity of production & sale, minimizing the
stockout cost, controlling the investment of working capital in stock
inventory control is essential, for scientific storing
b. Techniques like EOQ, min & max stock levels, reorder level, ABC
analysis, stock register
 4. Clearing & Forwarding
a. Railway station, Airport- Undergoing the required procedure & completing
necessary procedure
b. Railway or Steamer- Clearing & forwarding sec observes necessary
formalities for dispatch
c. Import Export- Lengthy & complicated procedure: Expert forwarding
agents
5. Materials Handling
After arrival at fact sent for checking the weight, Inspecting the quality,
Storerooms, issued to factory when needed for production, shifted from one
process to another during production process, case of assembly, Finished goods

Objectives of Material Management:

The objectives of material management are of two types and those are as
follows:
● Primary objectives and
● Secondary objectives
Primary Objectives:
The following are the primary objectives:
1. Low Prices. If materials department succeeds in reducing the price of items it
buys, it contributes in not only reducing the operating cost but also in enhancing
the profits.
2. Lower Inventories. By keeping inventories low in relation to sales, it ensures that
less capital is tied up in inventories. This increases the efficiency with which the
capital of the company is utilized resulting in higher return on investment. Storage
and carrying costs are also lower.
3. Reduction in Real Cost. Efficient and economical handling of materials and
storage lowers the acquisition and possession cost resulting in the reduction in
the real cost.
4. Regular Supply. Continuity of supply of materials is essential for eliminating the
disruption in the production process. In the absence of regular supply of materials,
production costs go up.
5. Procurement of Quality Materials. Materials department is responsible for
ensuring quality of materials from outside suppliers. Therefore, quality becomes
the single most objective in procurement of materials.
 6. Efficient handling of Materials. The effective material control techniques help
the efficient handling of materials resulting in the lowering of production cost.
7. Enhancement of firm’s goodwill. Good relations with the suppliers of materials
enhance the company’s standing in the society as well as in the business
community.
8. Locating and developing future Executives. Materials manager must devote
special effort to locate men at lower position who can take up the executive posts
in future. It helps in developing talented personnel who are ready to undertake
future responsibilities of the business relating to material management.
Secondary Objectives:
The following are the important secondary objectives of material management.
1. Reciprocity. The purchase of raw materials from the organizations/customers by
the concern and in turn, sale of finished products to the above customers is
known as reciprocity. It serves the twin purpose of increasing purchasing as well
as sales.
2. New Developments. The staff of the materials department deals regularly with
the suppliers responsible for new developments in material handling. These
developments can be successfully applied in material handling and management.
3. Make or Buy Decisions. The material manager with regular reviews of cost and
availability of materials can safely conclude that whether the material is to be
purchased or developed in the organization itself.
4. Standardization. Standardization of materials is greatly helpful in controlling the
material management process. With regular stock-taking, the non-standardized
items can be rejected and standard components may be brought into product
designs to reduce the cost of production. It is further helpful in promoting the
standardization with suppliers.
5. Assistance to Production department. By supplying the standardized materials
or components to the production department, quality products can be assured. It
is helpful in imparting the economic knowledge in bringing about the desired
improvement in the product.
6. Cooperation with other departments. Successful management of materials
department contributes to the success of every other department in the
organization. At the same time the success of materials department depends on
how successful it is in getting the co-operation of the staff of the other
departments.
7. Conception of future outlook. The materials manager must have some
conception of future outlook for prices, cost and general business activity.
Forecasting can be made about the future trends in materials. The materials
 manager should be able to foresee the prices and costs of the raw materials and
general business conditions through their daily contracts with the suppliers.
From the above it is clear that material management serves two-fold objectives
viz., to strive for a reduction in cost of production and distribution and to help the
enterprise in attaining its objectives.
These dual objectives of the material management further aim at maintaining the
regular flow of production by purchasing materials of right quality, in a right quantity at a
right time from a right source, on right terms and conditions and at lower price
It is helpful in efficiently controlling the inventories. It is further beneficial in
developing good buyer seller relations. Coordination with other departments is
established and considerably helps the organization to grow and advance in technical
field.

Functions of Material Management

Material management covers all aspects of material costs, supply and utilization.
The functional areas involved in material management usually include purchasing,
production control, shipping, receiving and stores.
The following functions are assigned for material management:
1. Production and Material Control. Production manager prepares schedules of
production to be carried in future. The requirements of parts and materials are
determined as per production schedules. Production schedules are prepared on
the basis of orders received or anticipated demand for goods. It is ensured that
every type or part of material is made available so that production is carried on
smoothly.
2. Purchasing. Purchasing department is authorized to make buying arrangements
on the basis of requisitions issued by other departments. This department keeps
contracts with suppliers and collects quotations etc. at regular intervals. The effort
by this department is to purchase proper quality goods at reasonable prices.
Purchasing is a managerial activity that goes beyond the simple act of buying and
includes the planning and policy activities covering a wide range of related and
complementary activities.
3. Non-Production Stores. Non-production materials like office supplies, perishable
tools and maintenance, repair and operating supplies are maintained as per the
needs of the business. These stores may not be required daily but their
availability in stores is essential. The non-availability of such stores may lead to
stoppage of work.
 4. Transportation. The transporting of materials from suppliers is an important
function of material management. The traffic department is responsible for
arranging transportation service. The vehicles may be purchased for the business
or these may be chartered from outside. It all depends upon the quantity and
frequency of buying materials. The purpose is to arrange cheap and quick
transport facilities for incoming materials.
5. Materials Handling. It is concerned with the movement of materials within a
manufacturing establishment and the cost of handling materials is kept under
control. It is also seen that there are no wastages or losses of materials during
their movement. Special equipment’s may be acquired for material handling.
6. Receiving. The receiving department is responsible for the unloading of
materials, counting the units, determining their quality and sending them to stores
etc. The purchasing department is also informed about the receipt of various
materials.

Advantages of Material Management

1. Reduced operating costs and timely production.
2. Greater job satisfaction on the part of both the workers and the employer.
3. Every inch of the space is properly utilized.
4. The issue of materials is also facilitated.
5. It helps in maintaining effective production planning and control

The Structure of the Organization with Material Management as a Separate

Function
A structure of the organization with material management as a separate function
is explained with the aid of a diagram and it is as below:
 Fig1: Structure of Organization with Material Management as a Separate Function

The Structure of Material Management’s Department in an Organization

Department of material management is required in a firm or organization to
control and coordinate various activities of material management and its structure is as
below:

Fig2: Organization of Material Management Department

Overview of Procurement Process in Material Management

Procurement in business plays an essential role within an organization. It is the

process of cost effectively acquiring products or services from preferred suppliers.
Procurement procedures and processes vary between organizations, with factors such
as delivery time frames, product quality and profit margins being a major consideration
in the procurement cycle.

The procurement procedure starts with the procurement department attaining

relevant suppliers and agreeing terms to achieve the best possible purchase cost price
for the business. When a business has a requirement for a specific product or service it
initiates requests for proposals (RFP), either through direct negotiation or a head-to-
head auction.

A typical procurement process includes:

● Identifying the needs of goods and services

● Finding suppliers
● Requesting proposals/quotations (RFP/RFQ)
● Negotiating with suppliers
● Agreeing terms with suppliers
● Arranging and receiving products/services
 ● Performing quality assurance
● Analyzing results and margins

Diagram: Typical stages in a procurement process flow chart

Procurement vs purchasing – What’s the difference?

Procurement and purchasing are two processes that both relate to the acquisition
of goods and services for an organization. Although they are similar and sit within the
procurement function there is a difference.

Procurement in business is a strategic process of identifying the market for a

product or service which includes sourcing and negotiating with suppliers, building
relationships with suppliers and evaluating cost savings.

Purchasing is a sub-process of procurement and relates to the transaction phase

of the procurement process. The purchasing phase includes the buying of goods or
services, purchase orders, invoicing, shipping notifications, goods receipt and payment.

Procurement vs purchasing overview

Procurement: ● Build and maintain relationships

● Analyze and report on cost
Strategic process
savings and profit margins etc.
● Identify need
Purchasing:
● Source relevant supplier(s)
Transactional activities
● Negotiate terms and contracts
● Receive purchase requisitions
 ● Attain and evaluate quotes from ● Receive goods/services
suppliers
● Process payment to supplier
● Raise purchase order (PO)

References:
https://www.codelessplatforms.com/blog/procurement-process-flow/
https://study.com/academy/lesson/materials-management-planning-process.html
https://www.pitt.edu
https://www.thomasnet.com/insights/what-is-materials-management/
https://www.tigernix.com/home/blog/overview-materials-management

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 Prepared by:
Angela Joy Portugal
Laurence Mendoza